Analyst corner | ‘Buy’ on Aditya Birla Fashion, target price Rs 235

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Published: August 9, 2019 2:11:39 AM

The company remains confident of medium-term margin expansion guidance of 10% (company-level Ebitda). We tweak our Ebitda estimates up by 1-2% (EPS higher by 5-7% due to change in depreciation policy).

Aditya Birla Fashion, lifestyle, EBITDA/PAT estimates, EBITDA margin, cost optimizationABFRL reported a robust quarter on operational front despite 3% revenue miss.

ABFRL reported operationally robust Q1FY20 print ahead of our EBITDA/PAT estimates. This was on robust gross margin expansion led by tight control over EoSS period, management of discounts and cost optimization initiatives taken. Management has upped store opening guidance in Lifestyle brands to 400 stores (300 earlier) but maintained 60-70 store opening in Pantaloons.

The company remains confident of medium-term margin expansion guidance of 10% (company-level Ebitda). We tweak our Ebitda estimates up by 1-2% (EPS higher by 5-7% due to change in depreciation policy).

We remain believers in ABFRL’s portfolio and like its extension into emerging categories, superior execution and quality of cash flow generation. We have ‘buy’ with SoTP-based revised TP of Rs 235 (Rs 225 earlier) – rollover to June-21E.

ABFRL reported a robust quarter on operational front despite 3% revenue miss. Strong beat in EBITDA/PBT (EBITDA increased 25% YoY on comparable basis) was led by 220 bps expansion in gross margin to 54.1% and 90 bps expansion in EBITDA margin to 6.9%. (vs. our estimate of 5.6%). We note EBITDA margin expansion in Madura has been robust at 100 bps led by Lifestyle brands. Pantaloons also sustained its margin improvement trajectory (despite high base).

Lifestyle brands’ revenue grew 6% Y-o-Y to Rs 2,060 crore (4% below our estimate) led by 3% LTL increase in retail stores; however, EBITDA grew 22% YoY (12% above our estimates) as EBITDA margin expanded 120 bps YoY to 9.3%. Ecommerce and women wear posted strong 42% and 48% YoY growth respectively. Other businesses’ revenue grew 76% Y-o-Y to Rs 125 crore, driven by aggressive reach expansion in innerwear business.

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